Price Oracle

Notes

Incentivising Honest Arbitrage With Reputation-Based Dynamic Bonding Curves

In order to perform arbitrage with Kingsilver’s reserve, arbitrageurs will have a reputation score. The more the arbitrageur performs honest arbitrage, the higher their score, and the higher their score, the more profitable the bonding curve they are trading with becomes. Reputation is earned slowly, and lost fast, but the growth in reputation would lead to much more profit. The idea is to make it more profitable over the long term to perform arbitrage honestly than it would be to try to manipulate pricing in the short term.

Perhaps algorithm based arbitrageurs have to have their algorithm approved by the Kingsilver DAO, or by a decentralised pool of code auditors… and updates to the code have to be approved also. On top of a reputation system that rewards good actors, and punishes bad actors, that would make it virtually impossible to attack the Oracle.

Pre-approving algorithms isn't the most efficient and beautiful solution though. Much better would be a game theory design that made honesty the most profitable action.

Perhaps the pricing oracle arbitrage happens 'off-chain'/OTC—much like how all trades that occur within centralised order book exchanges are all off-chain and therefore can't be frontrun—and with pre-approved arbitrageurs so trades can't be frontrun, and also trade announcements can't impact market price before they are executed by those arbitrageurs. Those arbitrageurs are also incentivised to not share with the world the trade announcement, because they also do not want the market reacting to it before they have realised their profit.

Or perhaps the best route is the reputation route… perhaps the higher the reputation the more